New research shows that EU Emissions Trading-related subsidies should be re-evaluated
In her dissertation, Maria Wang examines the economic impacts of the EU emissions trading system and a subsidy policy designed to compensate producers operating in the EU for the system’s costs.
To reduce the risk of carbon leakage, several EU countries have introduced a compensation subsidy for indirect costs under emissions trading, designed to cover the costs of increased electricity prices for production facilities. Finland is one of the ten countries to implement this system. Wang has evaluated the effectiveness of the subsidy in Finnish industry during the years 2016–2019. Her results do not show improvements in the competitiveness of the subsidy recipients.
"The recipients of the subsidy are in most cases large companies that do not suffer from the increase in electricity costs caused by emissions trading. Some of them even produce and sell their own electricity," Wang says. In Wang’s opinion, this raises questions about the usefulness of the subsidy.
"The subsidy has good intentions, but it has not been optimally designed. My results suggest that policymakers should evaluate how these subsidies are applied to ensure they are genuinely useful—or whether they are necessary at all."
The EU emissions trading system (EU ETS) sets a cap on emissions for several emission-intensive sectors, such as manufacturing and aviation, but allows companies to trade emission allowances. To lessen the negative impacts on producers, the EU has introduced the cost compensation subsidy. The subsidy is justified by the fact that the costs arising from emissions trading may weaken the EU’s competitiveness and lead to carbon leakage, where companies relocate production to areas with less stringent environmental regulations.
Although carbon leakage has not been a significant concern in the EU, there is evidence that some companies may relocate their production sites due to the costs of emissions trading. Wang states that carbon leakage is a concern, especially as the system tightens over time.
"However, overall EU emissions have decreased, and competitiveness has not been significantly harmed by emissions trading."
You can read the whole thesis online:
Essays on the competitiveness impacts of environmental and industrial policies
Maria Wang will defend her thesis on 5 December at 12:00 at Hanken School of Economics, Arkadiankatu 22, Helsinki.
The doctoral defence will be held as hybrid. Participants can attend on site or via video conference. Access the video conference via Teams. https://go.hanken.fi/defence-wang
Opponent: Professor Jurate Jaraite-Kazukauske, Vilnius University
Custos: Professor Rune Stenbacka, Hanken School of Economics